Bay Area Single-Tenant Asset Trades in Zero Cash Flow Deal

DalyCityCVSBarchester Corp paid $7.75 mil for a free-standing 14.5k sf ($534/sf) single-tenant retail property in Daly City, just south of San Francisco, as part of a 1031 exchange. The property is occupied by CVS Pharmacy, which has 23 years remaining on its lease. 
This was a zero cash flow transaction which, at 40% equity over debt, bested the national record by nearly double. Zero cash flow opportunities are highly complex, but they offer tax advantages for most of the loan term, and eventually turn into income-producing opportunities for the owner when the loan matures. 

Built in 2013, the property is situated on 1.15 acres at 135 Pierce St, just off the junction of Hwy 280 and Hwy 1 which sees more than 230,000 vehicles per day. It is within an infill location that has more than 40,000 consumers within a one-mile radius and is one of only two drug stores serving the immediate trade area. 

Rick Chichester, Donald MacLellan, and Thomas Chichester of Faris Lee Investments represented the buyer and the seller, 550 Larkin Street LLC, in the transaction. Chichester points out that zero cash flow properties provide an investor with the opportunity to buy a high-quality property with a strong national brand tenant that has a long-term lease in place. Zero cash flow opportunities are very efficient for 1031 exchange buyers as the loan can be quickly and easily assumed, as the financing is already in place. 

“In this particular case, this CVS property featured the pay down re-advance feature allowing a 1031 exchange buyer to purchase the property and pull out tax-free equity from the purchase,” adds Chichester. “This equity can then be deployed to other cash-flowing assets with full depreciable basis outside of the confines of the exchange. Overall a zero cash flow deal is a low cost way to obtain the tax benefits associated with real estate ownership.” 


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